Small business commissioner asks Sanjeev Gupta for assurances on Whyalla steelworks operations

SA’s small business commissioner has ‘raised concerns’ with Whyalla steelworks saviour Sanjeev Gupta as the solvency of his key financier falters.

South Australia’s small business commissioner John Chapman in Whyalla in 2017.

South Australia’s small business commissioner, John Chapman, has written to Sanjeev Gupta seeking financial assurances over the Whyalla steelworks, as fallout from the plight of its main financier grows.

Greensill Capital, the biggest funding source for Mr Gupta’s GFG Alliance, is preparing to file for insolvency in the UK and seek new buyers in a move that has piled pressure on Mr Gupta to ­urgently find alternative lenders.

Mr Chapman said he would send a letter on Thursday outlining his concerns.

“Basically I’m raising concerns about the reports I have seen and that Greensill has been a financier to GFG and I’m just seeking an ­assurance that should Greensill fail or controls be handed to other parties, that the loan arrangements won’t impact on supply payments and that they’ll continue according to the current payment terms,” Mr Chapman said.

“I’m putting in the context that it would not be reasonable to expect Whyalla-based or other businesses to expect payment plans to be unilaterally altered due to events beyond their control.

“In relation to the Whyalla and South Australian small businesses, and indeed large businesses, there are concerns. I’m concerned we may have issues depending on the arrangements between GFG and Greensill — if there is some issue around cashflows and indeed payment of accounts on time.”

GFG Alliance executive chairman Sanjeev Gupta next to a solar plant test rig near Whyalla.

Mr Chapman has previously told the state government to hold fire on any funding assistance to Mr Gupta’s expansion and transformation plans for Whyalla.

“I’ve had ongoing correspondence with Mr Gupta from time to time but as he’s pointed out to me directly, this was a business that has been losing money and they have to finance from their various cashflows,” he said, referring to Whyalla.

“It’s just that we have these external factors now potentially with financing that’s probably got all of our antenna up.”

Mr Gupta, who in late 2018 held a “Big Reveal” at the steelworks he had bought the year ­before, promising ambitious expansion and renewable energy plans, said in December last year that the steelworks would be back in the black by the end of 2020.

While the initial plan had been for the existing steelworks to be superseded by new technology, an expert team had been able to get it back to profitability, Mr Gupta said, and with iron ore prices strong, the mining side of the business had always been profitable.

Some of the blue sky projects, such as a 280MW solar power plant, which is fully approved but has not yet been built, and a new direct reduced iron facility initially powered by gas, and eventually by renewably produced hydrogen, are almost certainly going to be reliant on financing, meaning the current Greensill issues have cast doubts over their achievability at this point.

GFG reiterated on Thursday that the Whyalla operations were profitable.

“Work continues on the Whyalla transformation, as well as the transition program we currently have under way,’’ a spokesman said in a statement.

“This program, coupled with the strong recovery in the Australian steel and mining markets, has resulted in strong improvements to underlying earnings year on year and our integrated mining and steelworks operations in Whyalla are in the black.’’

Local state member of parliament Eddie Hughes said that, for the workers at the Whyalla ­operations, including his own son, it was “business as usual” at the moment.

Mr Hughes said the city had been through numerous bouts of speculation about its future, dating back to the 1980s and including BHP hiving off the operations into OneSteel, later renamed ­Arrium, which then collapsed into administration.

The Member for Giles, Eddie Hughes.

Mr Hughes said he had spoken to GFG and the unions and there was no cause for great concern regarding the current operations at the moment.

He said it was difficult for an outsider to gauge the extent of any issues with Greensill flowing on to GFG.

“The underlying fundamentals in Whyalla is that the steelworks has certainly improved, their performance is in the black, that’s been publicly stated, the mines, with the export of hematite ore, also doing extremely well,’’ Mr Hughes said.

Whyalla mayor Clare McLaughlin said the council continued to receive regular updates from GFG on its progress, and remained supportive of Mr Gupta’s commitment to the city and his plans to transform his Whyalla operations.

“We know that the steelworks has made some great progress this financial year — turning around its performance through efficiencies and capitalising on an ­improved market,” Ms McLaughlin said.

“The fact they have gone from losing significant money to returning to profitability — in a short space of time — should give the community great confidence in GFG’s long-term outlook.

“Mr Gupta has regularly stated his commitment to our city and we’re encouraged by GFG’s progress on a number of local projects.”

State Treasurer Rob Lucas told parliament on Wednesday that it had rejected a request from GFG to boost a proposed $50m taxpayer injection for the steelworks’ redevelopment.

The former Labor government committed a $50m package to help boost the revitalisation of Whyalla in the hope that the federal government would tip in an extra $100m on top of the state payment.

Sanjeev Gupta touring the Whyalla steelworks back in 2017.

Companies connected with Mr Gupta, presumed to be GFG, were unsuccessful in approaching the state’s Liberal government about a bigger funding package.

“It’s also fair to say at various stages there have been discussions from the company’s interests about whether or not there was ­interest from the government in relation to a more significant support package,” Mr Lucas told parliament on Wednesday.

“I and others on behalf of the government made it quite clear that the former Labor government made a commitment to a $50m support package. That was the extent of the government's potential involvement or investment in the future of the steelworks.

“And if the company was looking for further taxpayer support, it should look to either the federal government or alternative sources of funding.”

The state government said it was closely watching issues with Greensill Capital and its potential impact on Whyalla.

“I have been following the connections between Greensill, GFG and related financing and related companies for many, many months,” Mr Lucas said.

“The Wall Street Journal has written in recent days about recent challenges about Greensill.”

It remained open to honouring the $50m payment but only if it were used to boost the future of Whyalla rather than paying off debts or unpaid bills.

“The incoming government indicated we were prepared to honour the commitments made by the former Labor government in relation to this,” Mr Lucas said.

“The government has not signed off on an agreement in ­relation to that $50m support package.

“Broadly, the government has said we’re not interested in providing up to $50m of taxpayer money to fund the repayment of any debts or bills the company might have.

“If the government was going to follow it through, there needed to be tangible investments in the future of the steelworks at ­Whyalla that we could see and it’s quite clear that’s what the taxpayers of South Australia were investing in.”